Foreign liquidity to real estate market: Ripple effect and housing price dynamics

Author:

Liao Wen-Chi1,Zhao Daxuan1,Lim Li Ping1,Wong Grace Khei Mie1

Affiliation:

1. National University of Singapore, Singapore

Abstract

Globalisation enables foreign liquidity to access local property markets. This paper depicts a strong connection between foreigners’ property acquisitions and regional housing price movements in Singapore. Testing structure breaks also illustrates a ripple effect of prices from the central city to suburbs. A structural vector autoregression incorporates these two observations. Impulse-response function and forecast-error variance decomposition show that central region’s foreign-liquidity shocks can greatly impact housing price growth in not only the central region but also the non-central region where foreign buyers are inactive. The ripple effect of prices plays an important role. Non-central region’s foreign-liquidity shocks, in contrast, have small effects on both regions. Impacts of foreign-liquidity shocks can reach the public-housing market, where foreigners’ participation is prohibited. The findings are useful to policy makers who consider regulations of foreign home buyers as an instrument to stabilise housing markets.

Publisher

SAGE Publications

Subject

Urban Studies,Environmental Science (miscellaneous)

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